IndusInd Bank - Raising target price; we re-iterate a Buy :Anand Rathi

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IndusInd Bank
Raising target price; we re-iterate a Buy
IndusInd’s net profit was driven by higher net interest income
growth (31.9% yoy), robust fee income (39.3% yoy) and lower
NPA provisions. We raise our target price from `305 to `345, as
we value the stock at a 12-month forward BV of 3.2x. We retain
our Buy as we expect the RoE to expand, led by stable NIM,
improving share of fee income and healthy asset quality.
 Stable margins led by CASA share improvement. Reported
NIM improved 9bps yoy to 3.41%, largely led by a rise in CASA
share, by 398bps yoy (105bp qoq) to 24.2%. Likely gain in CASA
share, led by an increase in number of branches to 550 by Mar ’13
from 326 at present, would aid NIM of +3.5% over FY11-14e.
 Improving share of fee-income to boost RoA. Led by steady
business growth, fee income rose 39.3% yoy to ~1.8% of average
earning assets (annualized). We expect 30% CAGR in fee-income
over FY11-14, led by 32% business growth over the same period.
We estimate fees-to-average-earning-assets of 1.8% over FY11-14
to improve RoA to 1.53%/1.64% in FY12/FY13.
 Asset quality slips, high NPA coverage. Gross NPAs rose
16.3% qoq, but NPA coverage, at 72.9%m is high. IndusInd’s
likely robust pre-provisioning profits (31.2% over FY11-14e)
would sustain NPA coverage above 70%. Capital adequacy of
15% (tier-1 of 11.7%) is sufficient for robust business growth.
 Valuation and Risks. At our Sep ’12 target of `345, the stock
would trade at 3.4x FY12e and 2.9x FY13e BV. Risks: slower credit
growth; higher credit costs due to higher-than-expected NPA.